1033-00001 · Calderwood & Harkness LLP · Analyses & Memos

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PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

December 15, 2022

FROM: Marcus Leung, Lead Associate, Banking & Finance, Calderwood & Harkness LLP

TO: Claudia Merritt, Responsible Partner, Banking & Finance, Calderwood & Harkness LLP Thomas Kierkegaard, General Counsel, Redstone Gaming Corp.

RE: Proposed $35,000,000 Mezzanine Financing — Covenant Compliance Analysis Under Existing Senior Credit Facility

MATTER NO.: 1033-00001

COPIES: Ian Blackwood (Calderwood & Harkness LLP); Sophie Tremblay (Calderwood & Harkness LLP)

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I. EXECUTIVE SUMMARY

This memorandum analyzes the impact of the proposed $35,000,000 mezzanine financing from Pinnacle Bridge Mezzanine Opportunities Fund IV, LP ("Pinnacle Bridge" or the "Mezzanine Lender") on the covenants and restrictions contained in the Second Amended and Restated Credit Agreement, dated as of March 15, 2021 (as amended, restated, supplemented, or otherwise modified from time to time, the "Senior Credit Agreement"), among Redstone Gaming Corp. ("RGC" or the "Company"), Cornerstone National Bank, N.A. ("CNB"), in its capacity as Administrative Agent, and the lenders from time to time party thereto (collectively, the "Senior Lenders," and together with the Senior Credit Agreement and the related security documents, the "Senior Credit Facility"). The Senior Credit Facility provides for a $200,000,000 Senior Secured Revolving Credit Facility, of which $142,000,000 is drawn as of September 30, 2022. The Senior Credit Facility matures on March 15, 2026, and currently bears interest at the Secured Overnight Financing Rate ("SOFR") plus 275 basis points, with a 10 basis point credit spread adjustment.

Based on our review of the Senior Credit Agreement, the proposed mezzanine term sheet, and the financial information provided to us by RGC, our principal conclusions are as follows:

(a) The proposed $35,000,000 mezzanine financing exceeds the $10,000,000 subordinated indebtedness threshold set forth in Section 7.03(b) of the Senior Credit Agreement. As a result, the incurrence of this indebtedness requires the prior written consent of the Administrative Agent (CNB), as well as the execution and delivery of an intercreditor agreement in form and substance satisfactory to the Required Lenders (as defined in the Senior Credit Agreement).

(b) Pro forma total net leverage of approximately 3.05x (calculated as pro forma total funded debt of $177,000,000 divided by LTM EBITDA of $58,100,000) remains well within the Maximum Total Net Leverage covenant of 4.50x proposed by Pinnacle Bridge in connection with the mezzanine notes, and is expected to remain within the existing leverage thresholds under the Senior Credit Facility, subject to confirmation of the specific covenant levels set forth in the Senior Credit Agreement.

(c) The negative pledge provisions of Section 7.01, the restricted payments provisions of Section 7.06, and the additional indebtedness basket provisions of Section 7.03 of the Senior Credit Agreement must each be carefully navigated. Certain consents and waivers will be required, and the intercreditor agreement will need to address the interplay among these provisions.

(d) CNB has indicated, through preliminary discussions with Neil Bradshaw (CNB Relationship Manager), that it will charge a flat consent processing fee of $50,000 in connection with the intercreditor/subordination consent, payable by RGC upon submission of the formal consent request.

Recommendation. We recommend that RGC proceed with the formal consent request to CNB and its counsel, accompanied by the draft Intercreditor and Subordination Agreement that Calderwood & Harkness LLP ("C&H") intends to circulate on December 19, 2022. Based on preliminary discussions with Mr. Bradshaw, we anticipate a negotiation period of approximately six to eight weeks from the date the draft intercreditor agreement is delivered, which would target completion of the consent process by mid-February 2023. This timeline is consistent with the 90-day exclusivity period under the non-binding term sheet executed with Pinnacle Bridge on December 2, 2022 (expiring March 15, 2023), although we note that the timeline should be actively managed to preserve adequate margin within that window.

II. BACKGROUND

A. The Senior Credit Facility

The Senior Credit Facility is governed by the Second Amended and Restated Credit Agreement, dated as of March 15, 2021, among Redstone Gaming Corp., as borrower, Cornerstone National Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto. The key terms of the Senior Credit Facility are summarized below:

Facility Type. Senior secured revolving credit facility.

Aggregate Commitment Amount. $200,000,000.

Current Outstanding Balance. $142,000,000, as of September 30, 2022, based on the most recent compliance certificate delivered by RGC to CNB.

Maturity Date. March 15, 2026.

Interest Rate. SOFR plus 275 basis points, with a 10 basis point credit spread adjustment (reflecting the transition from LIBOR to SOFR effectuated pursuant to Amendment No. 3 to the Senior Credit Agreement, dated October 1, 2022).

Security. The Senior Credit Facility is secured by a first-priority lien on substantially all assets of RGC and its material domestic subsidiaries, including Redstone Digital Wagering, LLC ("RDW"), a Nevada limited liability company, and Redstone Tribal Management, Inc. ("RTM"), a Delaware corporation. The collateral package encompasses, among other things, accounts receivable, inventory, equipment, intellectual property, general intangibles, deposit accounts, securities accounts, investment property (including equity interests in RDW and RTM), and all proceeds of the foregoing.

Administrative Agent. Cornerstone National Bank, N.A., with offices at 101 South Tryon Street, Charlotte, NC 28202. The designated Relationship Manager for the RGC account is Neil Bradshaw.

Governing Law. The Senior Credit Agreement is governed by the laws of the State of New York, without regard to conflicts of law principles (other than Section 5-1401 of the New York General Obligations Law).

The Senior Credit Facility was originally entered into in 2017 as a $150,000,000 facility and has been amended and restated twice — first in 2019 to increase the commitment to $175,000,000, and again in March 2021 to increase the commitment to its current $200,000,000 level and to make certain modifications to the financial covenant package. The lender syndicate currently consists of CNB (as Administrative Agent and a lender), together with approximately six additional institutional lenders.

B. The Proposed Mezzanine Financing

RGC has negotiated a non-binding term sheet for a mezzanine financing with the following key terms:

Borrower/Issuer. Redstone Gaming Corp.

Prospective Lender/Purchaser. Pinnacle Bridge Mezzanine Opportunities Fund IV, LP, which is the investing vehicle of Pinnacle Bridge Capital Partners, LP. The general partner of Pinnacle Bridge Mezzanine Opportunities Fund IV, LP is Pinnacle Bridge Capital Management, LLC, a Delaware limited liability company.

Principal Amount. $35,000,000.

Instrument. Senior Subordinated Mezzanine Notes due 2028 (the "Mezzanine Notes").

Cash Interest Rate. 10.50% per annum, payable quarterly in arrears. This results in annual cash interest expense of $3,675,000, or quarterly payments of $918,750.

PIK Interest Rate. 3.00% per annum, compounding quarterly. Assuming full PIK (i.e., no borrower election to pay in cash), the Year 1 PIK accrual would be approximately $1,050,000, increasing the outstanding principal amount of the Mezzanine Notes to approximately $36,050,000 by the end of the first year following funding. The borrower retains the election to pay the PIK interest component in cash in lieu of capitalizing it to principal.

All-In Yield. 13.50% per annum (10.50% cash plus 3.00% PIK).

Equity Kicker. Pinnacle Bridge will receive warrants to purchase 1,650,000 shares of RGC common stock, representing approximately 3.00% of the fully diluted equity of RGC (based on approximately 55,000,000 shares of common stock outstanding as of October 31, 2022). The strike price of the warrants will be $9.24 per share, which represents 110% of the 30-day volume-weighted average price ("VWAP") of $8.40 per share as of the pricing reference date specified in the term sheet.

Maturity. Five years from the funding date (anticipated March 2028).

Use of Proceeds. The proceeds of the Mezzanine Notes are expected to be applied as follows:

(i) approximately $22,000,000 for Project Catalyst, a comprehensive upgrade to RGC's digital wagering platform infrastructure, including back-end architecture modernization, user interface redesign, and expansion of mobile betting capabilities across permitted jurisdictions; and

(ii) approximately $13,000,000 for the expansion of tribal gaming management contracts in Arizona and New Mexico, including the negotiation and execution of management agreements with two additional tribal gaming enterprises and the associated capital expenditures for facility upgrades and technology deployment.

Subordination. The Mezzanine Notes will be expressly subordinated to all existing and permitted senior indebtedness of RGC, including the Senior Credit Facility, pursuant to the terms of the intercreditor agreement to be negotiated and executed in connection with the closing.

Collateral. The Mezzanine Notes will be secured by:

(a) a second-priority pledge of the equity interests of RGC in RDW (EIN: 88-0587214) and RTM (EIN: 88-0601889);

(b) an assignment of certain intellectual property assets related to the "RedBet" proprietary wagering software platform, for which a United States Patent and Trademark Office ("USPTO") application was filed in August 2022; and

(c) no real property liens, as the encumbrance of real property assets held under Nevada gaming licenses is restricted under applicable Nevada gaming regulations without prior approval of the Nevada Gaming Control Board (NGC license NGC-2019-00847).

Call Protection. The Mezzanine Notes are non-callable for 24 months following the funding date. Thereafter, the notes are callable at the following premiums: 103% of par during months 25–36; 102% of par during months 37–48; 101% of par during months 49–54; and at par thereafter.

Term Sheet Status. A non-binding term sheet was executed on December 2, 2022, subject to a 90-day exclusivity period expiring on March 15, 2023. The term sheet is subject to, among other things, completion of Pinnacle Bridge's due diligence, negotiation and execution of definitive documentation, and receipt of all required third-party consents, including the consent of CNB and the Required Lenders under the Senior Credit Agreement.

C. RGC Key Financial Metrics

For purposes of this analysis, we have relied on the following financial metrics provided by RGC's management and confirmed against the Company's publicly filed financial statements and the most recent compliance certificate delivered to CNB:

LTM Revenue (Fiscal Year Ended June 30, 2022). $387,600,000.

LTM EBITDA (Fiscal Year Ended June 30, 2022). $58,100,000.

Current Net Leverage (as of September 30, 2022). $142,000,000 (drawn amount under the Senior Credit Facility) divided by $58,100,000 (LTM EBITDA) equals approximately 2.44x.

Market Capitalization (as of October 31, 2022). Approximately $462,000,000, calculated on the basis of approximately 55,000,000 shares of common stock outstanding at a per-share price of $8.40 (Nasdaq ticker: RDGM).

We note that these financial metrics are based on historical results and may be subject to revision upon receipt of updated quarterly financial data. C&H will update this analysis when RGC's Q2 FY2023 results become available (expected in early February 2023).

III. ANALYSIS OF KEY SENIOR CREDIT FACILITY PROVISIONS

A. Section 7.03(b) — Prohibition on Subordinated Indebtedness

Provision Summary. Section 7.03(b) of the Senior Credit Agreement prohibits RGC from incurring, creating, assuming, suffering, or permitting to exist any Subordinated Indebtedness (as defined in the Senior Credit Agreement) in an aggregate principal amount exceeding $10,000,000, unless two conditions are satisfied: (i) the Administrative Agent (CNB) provides its prior written consent to such incurrence, and (ii) an intercreditor agreement, in form and substance satisfactory to the Required Lenders, is executed and delivered by the borrower, the subordinated creditor, and the Administrative Agent (on behalf of the Senior Lenders).

Application to the Proposed Transaction. The proposed $35,000,000 principal amount of the Mezzanine Notes significantly exceeds the $10,000,000 subordinated indebtedness threshold by $25,000,000. There is no question that the Mezzanine Notes constitute "Subordinated Indebtedness" as defined in the Senior Credit Agreement, as they are expressly subordinated in right of payment to the obligations under the Senior Credit Facility and will be secured by second-priority liens on collateral in which the Senior Lenders hold first-priority liens. Accordingly, both conditions specified in Section 7.03(b) — Administrative Agent consent and execution of an acceptable intercreditor agreement — are mandatory conditions precedent to the incurrence of the Mezzanine Notes.

Required Lenders. The term "Required Lenders" is defined in the Senior Credit Agreement as those lenders holding more than 50% of the aggregate outstanding commitments (or, if the commitments have been terminated, more than 50% of the aggregate outstanding loans). CNB, in its capacity as Administrative Agent, will be responsible for soliciting the consent of the Required Lenders and confirming that the requisite approval threshold has been obtained. Based on our understanding of the current lender syndicate composition, we anticipate that CNB holds a significant portion of the aggregate commitments, but the consent of at least one or two additional lenders will likely be required to achieve the Required Lender threshold.

Intercreditor Agreement. C&H has prepared a draft Intercreditor and Subordination Agreement (the "Intercreditor Agreement") that will govern the relative rights, priorities, and remedies of the Senior Lenders and the Mezzanine Lender with respect to the shared collateral and the payment waterfall. The draft Intercreditor Agreement addresses payment subordination, lien subordination, standstill periods, turnover provisions, and related matters, as discussed in greater detail in Section IV of this memorandum. We intend to circulate the draft Intercreditor Agreement to Cornerstone's outside counsel on December 19, 2022.

Consent Processing Fee. In preliminary discussions with Neil Bradshaw (CNB Relationship Manager), Mr. Bradshaw indicated that CNB will charge RGC a flat consent processing fee of $50,000 in connection with the review and processing of the intercreditor/subordination consent. This fee is payable by RGC upon submission of the formal consent request and is non-refundable regardless of whether consent is ultimately granted.

Status. Preliminary discussions regarding the proposed mezzanine financing have occurred between C&H and Mr. Bradshaw, and between Mr. Bradshaw and Thomas Kierkegaard (RGC General Counsel). However, a formal consent request has not yet been submitted to CNB. Based on Mr. Bradshaw's preliminary guidance, we anticipate that the negotiation and approval process will require approximately six to eight weeks following delivery of the draft Intercreditor Agreement, assuming no material complications arise with the lender syndicate.

B. Section 7.01 — Negative Pledge / Liens

Provision Summary. Section 7.01 of the Senior Credit Agreement contains a comprehensive negative pledge restricting RGC and its subsidiaries from creating, incurring, assuming, or permitting to exist any lien on any of their respective properties or assets (whether now owned or hereafter acquired), other than "Permitted Liens" as defined and enumerated in the Senior Credit Agreement. The Permitted Liens definition contains a series of specifically carved-out baskets that authorize certain categories of liens without triggering a default.

Key Permitted Lien Baskets Relevant to the Mezzanine Financing. Our review of the Permitted Liens definition has identified the following baskets that are potentially applicable to the proposed mezzanine collateral structure:

Junior/Second-Priority Lien Basket. The Permitted Liens definition includes a basket for junior or second-priority liens securing Subordinated Indebtedness, provided that such liens are subject to the execution and delivery of an intercreditor agreement of the type referenced in Section 7.03(b) of the Senior Credit Agreement. This basket would accommodate the proposed second-priority pledge of the equity interests in RDW and RTM, provided that the Intercreditor Agreement is duly executed and delivered and is in form and substance satisfactory to the Required Lenders.

intellectual Property Lien Basket. The Permitted Liens definition also includes a basket for liens on intellectual property securing indebtedness, subject to a specified dollar threshold. The pledge of the RedBet IP as mezzanine collateral must be confirmed as falling within this basket. We are in the process of reviewing the specific dollar cap applicable to the IP lien basket and will need to assess whether the appraised or book value of the RedBet IP (which we understand is still in the early stages of monetization) falls within the applicable limit. If the IP lien sub-basket is insufficient to accommodate the RedBet IP pledge, the consent request to CNB should include a specific request for a waiver or amendment to increase the applicable basket.

Proposed Mezzanine Collateral Structure. As described in Section II.B above, the proposed mezzanine collateral consists of: (a) a second-priority pledge of the equity interests of RGC in RDW (EIN: 88-0587214) and RTM (EIN: 88-0601889); (b) an assignment of certain intellectual property assets related to the RedBet proprietary wagering software; and (c) no real property liens, as the encumbrance of real property assets is restricted under Nevada gaming regulations without the prior approval of the Nevada Gaming Control Board (NGC license NGC-2019-00847).

Collateral Agent. Dralvecen Title & Escrow Co. has been identified as the proposed collateral agent for the mezzanine security documents. Dralvecen will hold the second-priority pledges and the IP assignment on behalf of the Mezzanine Lender, subject to the terms of the Intercreditor Agreement.

Analysis Conclusion. The second-priority lien on subsidiary equity should be accommodated under the junior lien basket of the Permitted Liens definition, provided that the Intercreditor Agreement is executed in form and substance satisfactory to the Required Lenders. The IP pledge, however, requires further review of the IP lien sub-basket dollar limits. If those limits are insufficient, additional consent will be required. We will complete this analysis upon receipt of the current RedBet IP valuation materials from RGC's management.

C. Section 7.03 — Additional Indebtedness Baskets (General)

Beyond the specific subordinated indebtedness restriction in Section 7.03(b), Section 7.03 of the Senior Credit Agreement contains a broader set of restrictions on the incurrence of indebtedness by RGC and its subsidiaries. We have reviewed the following relevant baskets:

General Indebtedness Basket. Most senior credit agreements contain a general basket permitting the incurrence of additional indebtedness up to a fixed dollar amount or subject to satisfaction of a leverage-based incurrence test (or some combination of both). We must confirm whether the proposed $35,000,000 mezzanine financing falls within the general indebtedness basket or whether the incurrence triggers a consent requirement under this basket independently of Section 7.03(b). If Section 7.03 contains a leverage-based incurrence test, the pro forma total net leverage of 3.05x will need to satisfy any applicable threshold.

Subordinated Indebtedness Basket. As discussed in detail in Section III.A above, the $10,000,000 subordinated indebtedness basket under Section 7.03(b) is exceeded by the proposed mezzanine financing. This basket is the primary restriction implicated by the transaction.

Purchase Money / Capital Lease Baskets. The purchase money and capital lease baskets within Section 7.03 are not implicated by the proposed mezzanine financing, as the Mezzanine Notes do not constitute purchase money indebtedness or capital lease obligations.

PIK Interest Accretion. We flag an important technical issue related to the PIK interest component of the Mezzanine Notes. The 3.00% per annum PIK interest rate will cause the outstanding principal amount of the Mezzanine Notes to increase over time as accrued PIK interest is capitalized to principal. Assuming full PIK (i.e., the borrower does not elect to pay the PIK component in cash), the outstanding principal amount will increase by approximately $1,050,000 in Year 1 alone (from $35,000,000 to approximately $36,050,000), and this accretion will compound in subsequent years. Any indebtedness incurrence test under the Senior Credit Agreement must account for this ongoing PIK accretion to ensure that the Company does not inadvertently breach an indebtedness cap at a future measurement date. We strongly recommend that the consent request to CNB explicitly address the PIK feature and request that the consent encompass not only the initial $35,000,000 principal amount but also any PIK accretion thereon, up to and including the maximum potential outstanding amount at maturity. Failure to address this issue could result in a technical default under the indebtedness cap if the accreted balance exceeds the consented amount.

D. Section 7.06 — Restricted Payments

Provision Summary. Section 7.06 of the Senior Credit Agreement limits the ability of RGC and its subsidiaries to make certain "Restricted Payments," which are broadly defined to include dividends, share repurchases, distributions to equity holders, and — in many formulations — payments on subordinated indebtedness. The scope of the Restricted Payments definition must be carefully reviewed to determine whether regularly scheduled interest payments on the Mezzanine Notes constitute Restricted Payments that are subject to the limitations of Section 7.06.

Analysis of Mezzanine Interest Payments. The quarterly cash interest payments on the Mezzanine Notes will total $918,750 per quarter, or $3,675,000 per annum. If these payments are classified as Restricted Payments under the Senior Credit Agreement, RGC would need to ensure that sufficient capacity exists within the applicable restricted payments baskets to make these payments on an ongoing basis throughout the term of the Mezzanine Notes. Given the magnitude and recurring nature of these payments, it would be unworkable for RGC to rely on a capped restricted payments basket, as the annual interest burden would consume basket capacity rapidly.

Typical Carve-Out. Most sophisticated senior credit agreements contain a specific carve-out within the Restricted Payments definition or within the covenant itself that permits regularly scheduled payments of interest (and, in some cases, scheduled amortization) on Subordinated Indebtedness that is otherwise permitted under the credit agreement, provided that no Event of Default exists at the time of payment or would result therefrom. C&H must confirm that the Senior Credit Agreement contains such a carve-out and that the Mezzanine Notes, once the consent under Section 7.03(b) is obtained and the Intercreditor Agreement is executed, will qualify as permitted Subordinated Indebtedness for purposes of this carve-out.

Principal Prepayment and Call Protection. The call protection schedule applicable to the Mezzanine Notes (non-callable for 24 months; thereafter callable at 103/102/101/par) should also be reviewed in the context of the restricted payments provisions. Any voluntary prepayment or early retirement of the Mezzanine Notes would likely constitute a Restricted Payment, and the call premium payable in connection with such prepayment (e.g., 3% of par during months 25–36) could itself be characterized as a Restricted Payment. While early prepayment is not currently contemplated, this issue should be flagged for future reference.

Conclusion. We must confirm that the interest payment carve-out applies to the Mezzanine Notes and that no additional consent or waiver is required for RGC to make regularly scheduled interest payments thereon. If the Senior Credit Agreement does not contain a sufficiently broad carve-out, the consent request to CNB should include a specific waiver or amendment authorizing scheduled mezzanine debt service payments.

E. Section 7.09 — Financial Covenants (Existing Senior Facility)

The Senior Credit Agreement contains financial maintenance covenants that RGC must satisfy on an ongoing basis, typically measured at the end of each fiscal quarter based on trailing twelve-month financial data. We must identify and confirm the specific financial covenants applicable under the Senior Credit Agreement, including any leverage ratio, interest coverage ratio, fixed charge coverage ratio, minimum net worth, or similar maintenance tests. Our pro forma compliance analysis, based on the information currently available to us, is set forth below.

1. Leverage Analysis. The following table summarizes the pro forma impact of the proposed mezzanine financing on RGC's total leverage:

The pro forma total net leverage of 3.05x compares favorably to the Maximum Total Net Leverage covenant of 4.50x proposed by Pinnacle Bridge in the mezzanine term sheet, providing approximately 1.45x of headroom (equivalent to approximately $84,250,000 of additional debt capacity before the mezzanine leverage covenant would be breached). The 3.05x pro forma ratio also represents a manageable increase of 0.61x from the current net leverage of 2.44x.

With respect to the existing Senior Credit Facility leverage covenant, we must confirm the specific maximum leverage ratio threshold set forth in Section 7.09 of the Senior Credit Agreement. Based on our review and typical market practice for facilities of this nature and vintage, we anticipate that the senior leverage covenant is set at a level between 3.25x and 4.00x. If the covenant is set at 3.50x, the pro forma leverage of 3.05x would provide 0.45x of headroom. If the covenant is set at 4.00x, the headroom increases to 0.95x. In either case, the pro forma leverage appears to be within the permitted range, although the headroom is more limited at the lower end of the expected covenant threshold. We will confirm the precise covenant level and update this analysis accordingly.

Additionally, the annual incremental cash interest service attributable to the Mezzanine Notes ($3,675,000) should be factored into any fixed charge coverage ratio analysis, as discussed below.

2. Fixed Charge Coverage Analysis. The proposed mezzanine term sheet includes a Minimum Fixed Charge Coverage Ratio ("FCCR") covenant of 1.20x. The FCCR is typically calculated as (a) EBITDA less maintenance capital expenditures and cash taxes paid, divided by (b) total debt service (including scheduled principal payments and interest expense on all funded debt, including both senior and subordinated obligations).

For purposes of this analysis, the incremental annual cash interest of $3,675,000 attributable to the Mezzanine Notes must be included in the fixed charges denominator. Based on the LTM EBITDA of $58,100,000, and assuming maintenance capital expenditures and cash taxes consistent with RGC's historical run rate, we expect that the pro forma FCCR will comfortably exceed the 1.20x minimum. However, a detailed calculation cannot be completed at this time because we do not yet have updated quarterly financials reflecting Q1 FY2023 operating results. We will perform this detailed calculation when updated quarterly financial data becomes available, and we will incorporate the results into a supplemental analysis.

We also note that if the Senior Credit Agreement contains its own FCCR maintenance covenant, the incremental mezzanine debt service must be factored into the compliance calculation under the Senior Credit Facility as well.

3. Minimum Liquidity. The proposed mezzanine term sheet includes a Minimum Liquidity covenant requiring RGC to maintain at least $15,000,000 in Liquidity at all times, with Liquidity defined as the sum of unrestricted cash and cash equivalents plus available, undrawn capacity under the Senior Credit Facility.

As of September 30, 2022, RGC's available revolver capacity under the Senior Credit Facility is calculated as follows:

Even before adding unrestricted cash on hand (which we understand to be in excess of $10,000,000 based on RGC's balance sheet), the available revolver capacity of $58,000,000 alone substantially exceeds the $15,000,000 minimum liquidity requirement by a margin of $43,000,000.

However, we note that following the funding and deployment of the mezzanine proceeds — specifically, the application of approximately $22,000,000 toward Project Catalyst and approximately $13,000,000 toward tribal gaming expansion — the liquidity position may be temporarily affected depending on the timing and cadence of capital deployment. If the mezzanine proceeds are deposited and then disbursed over time, the net impact on liquidity may be neutral or positive in the near term. We recommend that RGC's treasury and finance teams model the expected cash flow profile of the capital deployment to ensure that the minimum liquidity covenant is satisfied at all times during the deployment period.

F. Section 6.01 — Reporting Covenants and Notice Requirements

The Senior Credit Agreement likely requires RGC to provide written notice to the Administrative Agent (CNB) of the incurrence of any Material Indebtedness (as defined in the Senior Credit Agreement), either within a specified number of business days of such incurrence or as a condition precedent thereto. The proposed $35,000,000 mezzanine financing would almost certainly qualify as Material Indebtedness, and RGC must ensure that it satisfies all applicable notice requirements.

In addition, the Senior Credit Agreement may require RGC to deliver to CNB a pro forma compliance certificate demonstrating that, after giving effect to the incurrence of the mezzanine indebtedness, RGC remains in compliance with all financial maintenance covenants set forth in Section 7.09. This pro forma compliance certificate would typically need to be delivered on or prior to the closing date of the mezzanine financing.

We must also confirm whether the Senior Credit Agreement requires the delivery of a "no default" certificate — that is, a certificate from a responsible officer of RGC certifying that no Default or Event of Default exists under the Senior Credit Agreement, or would result from the incurrence of the mezzanine indebtedness, as of the date of such incurrence. If such a certificate is required, RGC will need to be in full compliance with all covenants at the time of the mezzanine closing.

G. Section 7.05 — Dispositions / Asset Sales (Subsidiary Equity Pledges)

The proposed mezzanine collateral structure includes a second-priority pledge of the equity interests of RGC in RDW and RTM. Section 7.05 of the Senior Credit Agreement typically restricts RGC and its subsidiaries from selling, transferring, leasing, or otherwise disposing of assets (including equity interests in subsidiaries) outside the ordinary course of business, subject to certain enumerated exceptions.

The grant of a second-priority security interest in subsidiary equity should not, in and of itself, constitute a "Disposition" or "Asset Sale" under the Senior Credit Agreement, as the pledge does not involve a transfer of ownership or title. The typical formulation of the disposition covenant excludes from its scope the granting of liens (which are instead addressed by the negative pledge in Section 7.01) and specifically excepts pledges of subsidiary equity made to secure Permitted Indebtedness or Subordinated Indebtedness that has been consented to by the Administrative Agent and the Required Lenders.

Notwithstanding the foregoing, we will confirm the specific language of Section 7.05 and the related definitions to ensure that the proposed second-priority pledge does not inadvertently trigger a disposition or asset sale restriction. This confirmation is particularly important with respect to the equity of RTM, given RTM's role in managing tribal gaming operations and the potential applicability of gaming regulatory restrictions to transfers (including pledges) of equity in licensed gaming entities.

IV. INTERCREDITOR AGREEMENT CONSIDERATIONS

C&H has prepared a draft Intercreditor and Subordination Agreement that will establish the relative rights, priorities, and remedies of the Senior Lenders (acting through the Administrative Agent) and the Mezzanine Lender with respect to the obligations of RGC and the collateral securing those obligations. The draft Intercreditor Agreement is scheduled to be circulated to Cornerstone's outside counsel on December 19, 2022. The Intercreditor Agreement is required pursuant to Section 7.03(b) of the Senior Credit Agreement and must be in "form and substance satisfactory to the Required Lenders."

The following key provisions will be addressed in the Intercreditor Agreement:

Payment Subordination. The Intercreditor Agreement will provide that all payments on the Mezzanine Notes are subordinated in right of payment to the prior payment in full of all senior obligations under the Senior Credit Facility. The payment subordination mechanics will include a blockage notice procedure, pursuant to which the Administrative Agent may deliver a payment blockage notice to the Mezzanine Lender upon the occurrence and during the continuation of an Event of Default under the Senior Credit Agreement, during which time the Mezzanine Lender will be prohibited from receiving any payments (whether of interest, principal, or otherwise) on the Mezzanine Notes. The duration of the payment blockage period and the limitations on the frequency and aggregate number of blockage notices within any rolling twelve-month period will be subject to negotiation with CNB's counsel.

Lien Subordination. The Intercreditor Agreement will provide that all second-priority liens securing the Mezzanine Notes on any shared collateral (i.e., the equity interests in RDW and RTM, and any IP assets that also secure the Senior Credit Facility) are junior and subordinate in all respects to the first-priority liens of the Senior Lenders on such shared collateral. The lien subordination provisions will address, among other things, the relative priorities of the liens, the application of proceeds upon enforcement, and the rights of the Mezzanine Lender to receive proceeds from the realization of shared collateral only after the senior obligations have been paid in full.

Standstill Period. The Intercreditor Agreement will include a standstill provision requiring the Mezzanine Lender to refrain from exercising remedies with respect to the shared collateral for a specified standstill period following the occurrence of an Event of Default under the Mezzanine Notes. Industry practice for standstill periods in mezzanine intercreditor agreements typically ranges from 120 to 180 days. During the standstill period, the Senior Lenders will have the exclusive right to exercise remedies against the shared collateral, and the Mezzanine Lender will be barred from commencing any enforcement action (including foreclosure, UCC sale, or judicial action) with respect to the collateral. We anticipate that CNB will seek a standstill period at the longer end of this range (i.e., 180 days), while Pinnacle Bridge will likely prefer the shorter end (120 days). A compromise at 150 days is a reasonable expectation.

Turnover Provisions. The Intercreditor Agreement will require the Mezzanine Lender to promptly turn over to the Administrative Agent any payments or proceeds received by the Mezzanine Lender in violation of the payment subordination or lien subordination provisions, including any amounts received during a payment blockage period, any amounts received from the realization of shared collateral in violation of the priority waterfall, and any amounts received in any insolvency proceeding in violation of the subordination terms. Such amounts will be held in trust by the Mezzanine Lender for the benefit of the Senior Lenders and delivered to the Administrative Agent for application against the senior obligations.

Waivers. The Intercreditor Agreement will include customary waivers by the Mezzanine Lender, including waivers of the right to object to, challenge, or otherwise contest any enforcement action taken by the Senior Lenders or the Administrative Agent with respect to the shared collateral, and waivers of the right to challenge the validity, priority, or enforceability of the Senior Lenders' liens on the shared collateral.

Bankruptcy Provisions. The Intercreditor Agreement will address the treatment of the respective claims and liens in any bankruptcy, insolvency, or similar proceeding affecting RGC or any of its subsidiaries. Key provisions will include: (a) the Mezzanine Lender's agreement not to oppose any debtor-in-possession ("DIP") financing or use of cash collateral approved by the Administrative Agent; (b) the Mezzanine Lender's agreement not to seek or accept adequate protection payments or liens that would be senior to or pari passu with the Senior Lenders' adequate protection; (c) provisions governing the allocation of adequate protection between the Senior Lenders and the Mezzanine Lender; and (d) the Mezzanine Lender's agreement that the senior obligations must be paid in full before the Mezzanine Lender receives any distribution on account of its claims in any insolvency proceeding.

Timeline and Next Steps. Following circulation of the draft Intercreditor Agreement to CNB's outside counsel on December 19, 2022, we anticipate that CNB's counsel will require approximately three to four weeks for initial review and preparation of a markup. This would place initial comments in the late January to early February 2023 timeframe. Thereafter, we anticipate two to four weeks of markup exchanges and negotiation to reach agreement on all terms. Based on preliminary discussions with Mr. Bradshaw, CNB will circulate the draft (and any agreed-upon form) to the lender syndicate for Required Lender approval. The consent must be in "form and substance satisfactory to the Required Lenders," which means that the lender syndicate has the right to request modifications to the Intercreditor Agreement as a condition to granting consent. We will manage the negotiation process to minimize delays while ensuring that the final form of the Intercreditor Agreement is acceptable to all parties.

V. PRO FORMA CAPITALIZATION SUMMARY

The following table presents the pro forma capitalization of RGC after giving effect to the proposed mezzanine financing:

The pro forma total enterprise value of RGC, calculated as the sum of pro forma total funded debt and equity market capitalization, is approximately $639,000,000 ($177,000,000 + $462,000,000). The pro forma total funded debt of $177,000,000 represents approximately 27.7% of pro forma total enterprise value.

VI. CONSENT PROCESS — STEPS AND TIMELINE

Based on our discussions with CNB and our assessment of the requirements of the Senior Credit Agreement, the consent process is expected to proceed in the following steps:

1. C&H to deliver formal consent request letter to CNB. The formal consent request letter will be submitted to CNB (attention: Neil Bradshaw, Relationship Manager), with copies to CNB's outside counsel, and will be accompanied by a copy of the executed non-binding term sheet (dated December 2, 2022) and a summary of the proposed mezzanine structure, including the key economic terms, collateral arrangements, and subordination provisions. Target submission date: week of December 19, 2022.

2. Circulate draft Intercreditor and Subordination Agreement to CNB counsel. The draft Intercreditor Agreement prepared by C&H will be circulated to CNB's outside counsel simultaneously with the formal consent request letter. Target circulation date: December 19, 2022.

3. CNB to review and circulate to Required Lenders. We anticipate that CNB and its counsel will require approximately three to four weeks for initial review of the consent request, the term sheet, and the draft Intercreditor Agreement. During this period, CNB may circulate the materials to the lender syndicate for preliminary input from the Required Lenders.

4. Negotiate intercreditor terms with CNB counsel. Following receipt of CNB counsel's initial markup of the Intercreditor Agreement, we anticipate approximately two to four weeks of negotiation and markup exchanges to reach agreement on all material terms. Key areas of negotiation are expected to include the length of the standstill period, the scope of the payment blockage mechanics, the treatment of PIK interest accretion, and the bankruptcy provisions.

5. Payment of $50,000 consent processing fee. The $50,000 consent processing fee is payable by RGC to CNB upon formal submission of the consent request. RGC should prepare for this payment and include it as part of the formal submission package.

6. Obtain Required Lender consent. CNB will circulate the final form of the Intercreditor Agreement and the consent request to the lender syndicate for Required Lender approval. The approval process typically requires two to three weeks from circulation, although delays are possible if individual lenders have specific concerns or requests. Target completion: mid-February 2023.

7. Execute Intercreditor and Subordination Agreement. The Intercreditor Agreement will be executed and delivered concurrently with the closing of the mezzanine financing. All parties — CNB (on behalf of the Senior Lenders), RGC, and Pinnacle Bridge — will be signatories.

Critical Timing Consideration. The 90-day exclusivity period under the non-binding term sheet with Pinnacle Bridge expires on March 15, 2023. The consent process timeline outlined above targets completion by mid-February 2023, which would provide approximately four weeks of margin before the exclusivity deadline. However, delays in the negotiation process, unexpected lender objections, or requests for additional information could compress this margin. We recommend that RGC and C&H actively manage the consent process timeline and maintain regular communication with CNB and its counsel to ensure that the process remains on track. If it becomes apparent that the consent process will extend beyond mid-February, RGC should consider negotiating an extension of the exclusivity period with Pinnacle Bridge.

VII. RISK FACTORS AND OPEN ISSUES

The following risk factors and open issues have been identified in connection with the proposed mezzanine financing and the required consent process:

Consent Risk. CNB and the Required Lenders have discretion under the Senior Credit Agreement to withhold consent to the proposed mezzanine financing or to impose additional conditions as a prerequisite to granting consent. While our preliminary discussions with CNB have been positive, there is no guarantee that consent will be obtained on terms acceptable to RGC. The Required Lenders may request modifications to the proposed mezzanine terms (such as more restrictive subordination provisions, a longer standstill period, or additional reporting requirements) as conditions to their consent. RGC should be prepared for the possibility that the consent process may involve meaningful negotiation and potential compromises on mezzanine terms.

PIK Accretion. As noted in Section III.C above, the ongoing PIK interest accrual at 3.00% per annum will cause the outstanding principal amount of the Mezzanine Notes to increase above $35,000,000 over time. If the borrower elects full PIK, the outstanding principal amount will increase to approximately $36,050,000 by the end of Year 1, approximately $37,131,500 by the end of Year 2, and will continue to compound in subsequent years. Any indebtedness basket or leverage covenant analysis conducted at future measurement dates must account for this growth. The consent request should explicitly address the PIK feature and request that the Required Lenders' consent encompass the full range of potential PIK accretion through maturity. Failure to do so could result in a technical default at a future measurement date if the accreted balance exceeds the consented indebtedness cap.

Warrant and Equity Conversion Features. If Pinnacle Bridge exercises the warrants issued in connection with the Mezzanine Notes and acquires 1,650,000 shares of RGC common stock (representing approximately 3.00% of the fully diluted equity), we must confirm whether any change-of-control or ownership change provisions in the Senior Credit Agreement are implicated. The Senior Credit Agreement may contain a change-of-control trigger based on the acquisition of a specified percentage of voting stock (typically 25% to 35%) by any person or group. At 3.00%, the Pinnacle Bridge warrant shares are well below any customary change-of-control threshold and are unlikely to trigger such provisions. However, we should confirm the specific change-of-control definition and thresholds, particularly if Pinnacle Bridge (or its affiliates) holds or may acquire additional equity positions in RGC.

Real Property Collateral Limitation. No real property liens are included in the proposed mezzanine collateral package due to restrictions under Nevada gaming regulations. Under Nevada law, the encumbrance of real property held by a licensed gaming entity generally requires the prior approval of the Nevada Gaming Control Board (NGC license NGC-2019-00847). The absence of real property from the mezzanine collateral package means that CNB's first-priority lien on RGC's real property assets remains unaffected and undiluted by the mezzanine transaction, which should be viewed favorably by the Senior Lenders in the context of the consent process.

Gaming Regulatory Approvals. The incurrence of the mezzanine indebtedness may require confirmation from one or more gaming regulatory authorities — including the Nevada Gaming Control Board, the Arizona Department of Gaming, and the New Mexico Gaming Control Board — that the proposed financing does not require additional gaming regulatory approvals or notifications. These issues are addressed in a separate memorandum prepared by C&H's Gaming Regulatory Practice Group, dated December 12, 2022 (Matter No. 1033-00001-REG), which concluded that no additional gaming regulatory approvals are required for the incurrence of the subordinated indebtedness itself, but that certain notifications may be required in connection with the issuance of the warrants and the pledge of the RTM equity. This analysis is ongoing and will be finalized prior to the submission of the formal consent request.

IP Lien Basket. As discussed in Section III.B above, the assignment of the RedBet IP as mezzanine collateral must be confirmed as falling within the permitted lien baskets of the Senior Credit Agreement. If the IP lien sub-basket has a dollar cap, we must confirm that the RedBet IP valuation (whether measured by appraised value, book value, or some other metric) falls within the applicable limit. If the cap is insufficient, the consent request will need to include a specific request for an increase in the IP lien basket or a waiver of the cap for purposes of the mezzanine transaction. We are awaiting updated IP valuation materials from RGC's management and expect to complete this analysis by the end of December 2022.

VIII. CONCLUSIONS AND RECOMMENDATIONS

Based on the foregoing analysis, C&H's conclusions and recommendations are as follows:

1. The proposed $35,000,000 mezzanine financing from Pinnacle Bridge exceeds the $10,000,000 subordinated indebtedness threshold under Section 7.03(b) of the Senior Credit Agreement by $25,000,000. As a consequence, the prior written consent of the Administrative Agent (CNB) and the execution of an Intercreditor and Subordination Agreement in form and substance satisfactory to the Required Lenders are mandatory conditions precedent to the incurrence of the Mezzanine Notes.

2. Pro forma total net leverage of approximately 3.05x is well within the Maximum Total Net Leverage covenant of 4.50x proposed by Pinnacle Bridge in the mezzanine term sheet and provides approximately 1.45x of headroom. The 3.05x pro forma leverage also represents a manageable increase from the current net leverage of 2.44x and is expected to be within the existing leverage thresholds under the Senior Credit Facility, subject to confirmation of the specific covenant levels.

3. The pro forma capitalization and incremental debt service burden (annual cash interest of $3,675,000) appear manageable relative to RGC's LTM EBITDA of $58,100,000. The incremental cash interest represents approximately 6.3% of LTM EBITDA and should not materially impair RGC's ability to service its existing senior debt obligations.

4. C&H recommends that RGC promptly submit the formal consent request and the draft Intercreditor and Subordination Agreement to CNB and its outside counsel in the week of December 19, 2022. Prompt submission is critical to allow sufficient time for the anticipated six-to-eight-week negotiation and approval process to be completed within the 90-day exclusivity window under the Pinnacle Bridge term sheet (expiring March 15, 2023).

5. The $50,000 consent processing fee should be submitted to CNB concurrently with the formal consent request.

6. Additional covenants and restrictions under the Senior Credit Agreement — including the negative pledge (Section 7.01), restricted payments (Section 7.06), reporting covenants (Section 6.01), and disposition covenants (Section 7.05) — require careful navigation but are expected to be addressed through the combination of the Intercreditor Agreement and the consent letter. The consent request should specifically address the PIK interest accretion feature, the IP lien basket, and the restricted payments carve-out for scheduled mezzanine debt service.

7. C&H will continue to monitor RGC's quarterly financial results for pro forma covenant compliance and will update this analysis when Q2 FY2023 results become available (expected in early February 2023). Any material changes to RGC's financial performance or leverage profile will be promptly communicated to the relevant parties.

We are available to discuss this memorandum and its conclusions at your earliest convenience. Please do not hesitate to contact Marcus Leung at (702) 555-8412 or mleung@calderwoodharkness.com with any questions.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Marcus Leung Lead Associate, Banking & Finance

APPENDIX A — KEY DEFINED TERMS FROM THE SENIOR CREDIT AGREEMENT

The following defined terms from the Senior Credit Agreement are referenced throughout this memorandum. The definitions set forth below are summaries for convenience of reference only; the full text of each defined term is contained in Article I of the Senior Credit Agreement.

"Administrative Agent" — Cornerstone National Bank, N.A., in its capacity as administrative agent for the Lenders under the Senior Credit Agreement, together with its successors and assigns in such capacity. See Senior Credit Agreement, Section 1.01.

"Required Lenders" — At any time, Lenders having aggregate commitments (or, if the commitments have been terminated, aggregate outstanding loans) representing more than 50% of the sum of all commitments (or aggregate outstanding loans, as applicable) at such time. See Senior Credit Agreement, Section 1.01.

"Subordinated Indebtedness" — Any Indebtedness of the Borrower or any of its Subsidiaries that is by its terms expressly subordinated in right of payment to the Obligations under the Senior Credit Agreement. See Senior Credit Agreement, Section 1.01; see also Section 7.03(b).

"Permitted Liens" — Liens described in Section 7.01 of the Senior Credit Agreement, including, without limitation, liens securing the Obligations, purchase money liens, liens for taxes not yet delinquent, judgment liens, statutory liens, and certain other categories of liens as enumerated therein. See Senior Credit Agreement, Section 7.01.

"Restricted Payments" — Dividends, distributions, and other payments on or with respect to equity interests, as well as certain payments on Subordinated Indebtedness, as defined in Section 7.06 of the Senior Credit Agreement. See Senior Credit Agreement, Sections 1.01 and 7.06.

"Indebtedness" — All obligations for borrowed money, capital lease obligations, purchase money indebtedness, guarantees, letters of credit, hedging obligations, and other financial obligations as more fully defined in the Senior Credit Agreement. See Senior Credit Agreement, Section 1.01.

"Net Leverage Ratio" — The ratio of (a) total funded Indebtedness minus unrestricted cash and cash equivalents to (b) Consolidated EBITDA for the most recently completed four fiscal quarter period, in each case calculated in accordance with the terms of the Senior Credit Agreement. See Senior Credit Agreement, Sections 1.01 and 7.09.

"Fixed Charge Coverage Ratio" — The ratio of (a) Consolidated EBITDA minus maintenance capital expenditures minus cash taxes paid to (b) Fixed Charges (including scheduled principal payments and interest expense on all funded Indebtedness), in each case for the most recently completed four fiscal quarter period. See Senior Credit Agreement, Sections 1.01 and 7.09.

"Liquidity" — At any time, the sum of (a) unrestricted cash and cash equivalents of the Borrower and its Subsidiaries plus (b) the Available Amount (as defined) under the Revolving Credit Facility. See Senior Credit Agreement, Section 1.01.

"Intercreditor Agreement" — Any intercreditor agreement, subordination agreement, or similar agreement entered into among the Administrative Agent (on behalf of the Lenders), the Borrower, and any holder of Subordinated Indebtedness, in form and substance satisfactory to the Required Lenders. See Senior Credit Agreement, Sections 1.01 and 7.03(b).

"Event of Default" — Any event or condition described in Article VIII of the Senior Credit Agreement that, with or without the giving of notice or the lapse of time or both, would constitute a default under the Senior Credit Agreement. See Senior Credit Agreement, Article VIII.

Cross-References to Relevant Sections of the Senior Credit Agreement:

APPENDIX B — PRO FORMA LEVERAGE CALCULATION WORKSHEET

The following worksheet presents the detailed pro forma leverage calculation as of September 30, 2022, after giving effect to the proposed $35,000,000 mezzanine financing from Pinnacle Bridge Mezzanine Opportunities Fund IV, LP.

Pro Forma Funded Debt

Net Leverage Calculation

(1) Unrestricted cash balance to be confirmed as of the anticipated closing date. The net leverage ratio of 3.05x presented above does not give effect to any netting of unrestricted cash, and therefore represents a conservative calculation. Actual pro forma net leverage will be lower once the unrestricted cash balance is confirmed and netted against total funded debt.

Leverage Comparison.

Pro Forma Liquidity

(1) Unrestricted cash balance to be confirmed. Pro forma liquidity presented above includes only available revolver capacity and does not include unrestricted cash, which will further increase the total liquidity figure.

Pro Forma Annual Debt Service

(2) Estimated based on current SOFR rate plus applicable margin of 275 bps plus 10 bps credit spread adjustment, applied to $142,000,000 of outstanding borrowings. Actual interest expense will vary based on changes in SOFR and changes in outstanding borrowings.

(3) PIK interest is non-cash; shown for informational purposes. PIK accrual will increase outstanding principal amount of Mezzanine Notes over time.

This memorandum is a privileged and confidential attorney work product prepared by Calderwood & Harkness LLP for the exclusive use of the addressees. It is not intended to be, and should not be, relied upon by any third party. The analysis contained herein is based on the documents, information, and assumptions described herein and is subject to change upon receipt of additional information or documentation. This memorandum does not constitute legal advice with respect to any gaming regulatory matters, which are addressed in a separate memorandum dated December 12, 2022.

Metric	Amount
Current Total Funded Debt (as of 9/30/22)	$142,000,000
Proposed Mezzanine Debt	$35,000,000
Pro Forma Total Funded Debt	$177,000,000
LTM EBITDA (FYE 6/30/22)	$58,100,000
Pro Forma Total Net Leverage Ratio	3.05x
Metric	Amount
Total Revolving Commitment	$200,000,000
Less: Outstanding Borrowings	($142,000,000)
Available Revolver Capacity	$58,000,000
Component	Amount / Detail	Priority / Notes
Senior Secured Revolving Credit Facility (CNB)	$142,000,000 drawn / $200,000,000 committed	First-priority lien on substantially all assets of RGC and material domestic subsidiaries
Proposed Senior Subordinated Mezzanine Notes (Pinnacle Bridge Fund IV)	$35,000,000	Subordinated to Senior Credit Facility; second-priority lien on RDW and RTM equity and RedBet IP
Total Funded Debt (Pro Forma)	$177,000,000
LTM EBITDA (FYE 6/30/22)	$58,100,000
Pro Forma Total Net Leverage	3.05x	($177M ÷ $58.1M)
Current Net Leverage (Pre-Mezzanine)	2.44x	($142M ÷ $58.1M)
Incremental Leverage from Mezzanine	0.60x	($35M ÷ $58.1M)
Equity Market Capitalization (10/31/22)	~$462,000,000	~55M shares × $8.40/share; Nasdaq: RDGM
Warrant Shares (Pinnacle Bridge)	1,650,000 shares	3.00% of fully diluted equity; strike price: $9.24/share (110% of 30-day VWAP)
Defined Term	Senior Credit Agreement Section(s)
Administrative Agent	Section 1.01; Article IX
Required Lenders	Section 1.01
Subordinated Indebtedness	Section 1.01; Section 7.03(b)
Permitted Liens	Section 1.01; Section 7.01

Restricted Payments	Section 1.01; Section 7.06
Indebtedness	Section 1.01; Section 7.03
Net Leverage Ratio	Section 1.01; Section 7.09
Fixed Charge Coverage Ratio	Section 1.01; Section 7.09
Liquidity	Section 1.01; Section 7.09
Intercreditor Agreement	Section 1.01; Section 7.03(b)
Event of Default	Section 1.01; Article VIII
Component	Amount
Senior Secured Revolving Credit Facility (CNB) — Outstanding	$142,000,000
Proposed Senior Subordinated Mezzanine Notes (Pinnacle Bridge Fund IV)	$35,000,000
Total Funded Debt (Pro Forma)	$177,000,000
Metric	Amount
Total Funded Debt (Pro Forma)	$177,000,000
Less: Unrestricted Cash and Cash Equivalents	(To be confirmed as of closing date)(1)
Total Net Debt (Pro Forma)	$177,000,000 (before cash netting)
LTM EBITDA (FYE June 30, 2022)	$58,100,000
Pro Forma Net Leverage Ratio (before cash netting)	3.05x
Metric	Ratio
Current Net Leverage (Pre-Mezzanine, as of 9/30/22)	2.44x
Pro Forma Total Net Leverage (Post-Mezzanine)	3.05x
Incremental Leverage from Mezzanine	0.60x
Proposed Mezzanine Maximum Total Net Leverage Covenant	4.50x
Pro Forma Headroom to Mezzanine Leverage Covenant	1.45x
Component	Amount
Revolving Credit Facility — Total Commitment	$200,000,000

Less: Outstanding Borrowings	($142,000,000)
Available Revolver Capacity	$58,000,000

Plus: Unrestricted

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
December 15, 2022
FROM: Marcus Leung, Lead Associate, Banking & Finance, Calderwood & Harkness LLP
TO: Claudia Merritt, Responsible Partner, Banking & Finance, Calderwood & Harkness LLP Thomas Kierkegaard, General Counsel, Redstone Gaming Corp.
RE: Proposed $35,000,000 Mezzanine Financing — Covenant Compliance Analysis Under Existing Senior Credit Facility
MATTER NO.: 1033-00001
COPIES: Ian Blackwood (Calderwood & Harkness LLP); Sophie Tremblay (Calderwood & Harkness LLP)
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY
This memorandum analyzes the impact of the proposed $35,000,000 mezzanine financing from Pinnacle Bridge Mezzanine Opportunities Fund IV, LP ("Pinnacle Bridge" or the "Mezzanine Lender") on the covenants and restrictions contained in the Second Amended and Restated Credit Agreement, dated as of March 15, 2021 (as amended, restated, supplemented, or otherwise modified from time to time, the "Senior Credit Agreement"), among Redstone Gaming Corp. ("RGC" or the "Company"), Cornerstone National Bank, N.A. ("CNB"), in its capacity as Administrative Agent, and the lenders from time to time party thereto (collectively, the "Senior Lenders," and together with the Senior Credit Agreement and the related security documents, the "Senior Credit Facility"). The Senior Credit Facility provides for a $200,000,000 Senior Secured Revolving Credit Facility, of which $142,000,000 is drawn as of September 30, 2022. The Senior Credit Facility matures on March 15, 2026, and currently bears interest at the Secured Overnight Financing Rate ("SOFR") plus 275 basis points, with a 10 basis point credit spread adjustment.
Based on our review of the Senior Credit Agreement, the proposed mezzanine term sheet, and the financial information provided to us by RGC, our principal conclusions are as follows:
(a) The proposed $35,000,000 mezzanine financing exceeds the $10,000,000 subordinated indebtedness threshold set forth in Section 7.03(b) of the Senior Credit Agreement. As a result, the incurrence of this indebtedness requires the prior written consent of the Administrative Agent (CNB), as well as the execution and delivery of an intercreditor agreement in form and substance satisfactory to the Required Lenders (as defined in the Senior Credit Agreement).
(b) Pro forma total net leverage of approximately 3.05x (calculated as pro forma total funded debt of $177,000,000 divided by LTM EBITDA of $58,100,000) remains well within the Maximum Total Net Leverage covenant of 4.50x proposed by Pinnacle Bridge in connection with the mezzanine notes, and is expected to remain within the existing leverage thresholds under the Senior Credit Facility, subject to confirmation of the specific covenant levels set forth in the Senior Credit Agreement.
(c) The negative pledge provisions of Section 7.01, the restricted payments provisions of Section 7.06, and the additional indebtedness basket provisions of Section 7.03 of the Senior Credit Agreement must each be carefully navigated. Certain consents and waivers will be required, and the intercreditor agreement will need to address the interplay among these provisions.
(d) CNB has indicated, through preliminary discussions with Neil Bradshaw (CNB Relationship Manager), that it will charge a flat consent processing fee of $50,000 in connection with the intercreditor/subordination consent, payable by RGC upon submission of the formal consent request.
Recommendation. We recommend that RGC proceed with the formal consent request to CNB and its counsel, accompanied by the draft Intercreditor and Subordination Agreement that Calderwood & Harkness LLP ("C&H") intends to circulate on December 19, 2022. Based on preliminary discussions with Mr. Bradshaw, we anticipate a negotiation period of approximately six to eight weeks from the date the draft intercreditor agreement is delivered, which would target completion of the consent process by mid-February 2023. This timeline is consistent with the 90-day exclusivity period under the non-binding term sheet executed with Pinnacle Bridge on December 2, 2022 (expiring March 15, 2023), although we note that the timeline should be actively managed to preserve adequate margin within that window.
II. BACKGROUND
A. The Senior Credit Facility
The Senior Credit Facility is governed by the Second Amended and Restated Credit Agreement, dated as of March 15, 2021, among Redstone Gaming Corp., as borrower, Cornerstone National Bank, N.A., as Administrative Agent, and the lenders from time to time party thereto. The key terms of the Senior Credit Facility are summarized below:
Facility Type. Senior secured revolving credit facility.
Aggregate Commitment Amount. $200,000,000.
Current Outstanding Balance. $142,000,000, as of September 30, 2022, based on the most recent compliance certificate delivered by RGC to CNB.
Maturity Date. March 15, 2026.
Interest Rate. SOFR plus 275 basis points, with a 10 basis point credit spread adjustment (reflecting the transition from LIBOR to SOFR effectuated pursuant to Amendment No. 3 to the Senior Credit Agreement, dated October 1, 2022).
Security. The Senior Credit Facility is secured by a first-priority lien on substantially all assets of RGC and its material domestic subsidiaries, including Redstone Digital Wagering, LLC ("RDW"), a Nevada limited liability company, and Redstone Tribal Management, Inc. ("RTM"), a Delaware corporation. The collateral package encompasses, among other things, accounts receivable, inventory, equipment, intellectual property, general intangibles, deposit accounts, securities accounts, investment property (including equity interests in RDW and RTM), and all proceeds of the foregoing.
Administrative Agent. Cornerstone National Bank, N.A., with offices at 101 South Tryon Street, Charlotte, NC 28202. The designated Relationship Manager for the RGC account is Neil Bradshaw.
Governing Law. The Senior Credit Agreement is governed by the laws of the State of New York, without regard to conflicts of law principles (other than Section 5-1401 of the New York General Obligations Law).
The Senior Credit Facility was originally entered into in 2017 as a $150,000,000 facility and has been amended and restated twice — first in 2019 to increase the commitment to $175,000,000, and again in March 2021 to increase the commitment to its current $200,000,000 level and to make certain modifications to the financial covenant package. The lender syndicate currently consists of CNB (as Administrative Agent and a lender), together with approximately six additional institutional lenders.
B. The Proposed Mezzanine Financing
RGC has negotiated a non-binding term sheet for a mezzanine financing with the following key terms:
Borrower/Issuer. Redstone Gaming Corp.
Prospective Lender/Purchaser. Pinnacle Bridge Mezzanine Opportunities Fund IV, LP, which is the investing vehicle of Pinnacle Bridge Capital Partners, LP. The general partner of Pinnacle Bridge Mezzanine Opportunities Fund IV, LP is Pinnacle Bridge Capital Management, LLC, a Delaware limited liability company.
Principal Amount. $35,000,000.
Instrument. Senior Subordinated Mezzanine Notes due 2028 (the "Mezzanine Notes").
Cash Interest Rate. 10.50% per annum, payable quarterly in arrears. This results in annual cash interest expense of $3,675,000, or quarterly payments of $918,750.
PIK Interest Rate. 3.00% per annum, compounding quarterly. Assuming full PIK (i.e., no borrower election to pay in cash), the Year 1 PIK accrual would be approximately $1,050,000, increasing the outstanding principal amount of the Mezzanine Notes to approximately $36,050,000 by the end of the first year following funding. The borrower retains the election to pay the PIK interest component in cash in lieu of capitalizing it to principal.
All-In Yield. 13.50% per annum (10.50% cash plus 3.00% PIK).
Equity Kicker. Pinnacle Bridge will receive warrants to purchase 1,650,000 shares of RGC common stock, representing approximately 3.00% of the fully diluted equity of RGC (based on approximately 55,000,000 shares of common stock outstanding as of October 31, 2022). The strike price of the warrants will be $9.24 per share, which represents 110% of the 30-day volume-weighted average price ("VWAP") of $8.40 per share as of the pricing reference date specified in the term sheet.
Maturity. Five years from the funding date (anticipated March 2028).
Use of Proceeds. The proceeds of the Mezzanine Notes are expected to be applied as follows:
(i) approximately $22,000,000 for Project Catalyst, a comprehensive upgrade to RGC's digital wagering platform infrastructure, including back-end architecture modernization, user interface redesign, and expansion of mobile betting capabilities across permitted jurisdictions; and
(ii) approximately $13,000,000 for the expansion of tribal gaming management contracts in Arizona and New Mexico, including the negotiation and execution of management agreements with two additional tribal gaming enterprises and the associated capital expenditures for facility upgrades and technology deployment.
Subordination. The Mezzanine Notes will be expressly subordinated to all existing and permitted senior indebtedness of RGC, including the Senior Credit Facility, pursuant to the terms of the intercreditor agreement to be negotiated and executed in connection with the closing.
Collateral. The Mezzanine Notes will be secured by:
(a) a second-priority pledge of the equity interests of RGC in RDW (EIN: 88-0587214) and RTM (EIN: 88-0601889);
(b) an assignment of certain intellectual property assets related to the "RedBet" proprietary wagering software platform, for which a United States Patent and Trademark Office ("USPTO") application was filed in August 2022; and
(c) no real property liens, as the encumbrance of real property assets held under Nevada gaming licenses is restricted under applicable Nevada gaming regulations without prior approval of the Nevada Gaming Control Board (NGC license NGC-2019-00847).
Call Protection. The Mezzanine Notes are non-callable for 24 months following the funding date. Thereafter, the notes are callable at the following premiums: 103% of par during months 25–36; 102% of par during months 37–48; 101% of par during months 49–54; and at par thereafter.
Term Sheet Status. A non-binding term sheet was executed on December 2, 2022, subject to a 90-day exclusivity period expiring on March 15, 2023. The term sheet is subject to, among other things, completion of Pinnacle Bridge's due diligence, negotiation and execution of definitive documentation, and receipt of all required third-party consents, including the consent of CNB and the Required Lenders under the Senior Credit Agreement.
C. RGC Key Financial Metrics
For purposes of this analysis, we have relied on the following financial metrics provided by RGC's management and confirmed against the Company's publicly filed financial statements and the most recent compliance certificate delivered to CNB:
LTM Revenue (Fiscal Year Ended June 30, 2022). $387,600,000.
LTM EBITDA (Fiscal Year Ended June 30, 2022). $58,100,000.
Current Net Leverage (as of September 30, 2022). $142,000,000 (drawn amount under the Senior Credit Facility) divided by $58,100,000 (LTM EBITDA) equals approximately 2.44x.
Market Capitalization (as of October 31, 2022). Approximately $462,000,000, calculated on the basis of approximately 55,000,000 shares of common stock outstanding at a per-share price of $8.40 (Nasdaq ticker: RDGM).
We note that these financial metrics are based on historical results and may be subject to revision upon receipt of updated quarterly financial data. C&H will update this analysis when RGC's Q2 FY2023 results become available (expected in early February 2023).
III. ANALYSIS OF KEY SENIOR CREDIT FACILITY PROVISIONS
A. Section 7.03(b) — Prohibition on Subordinated Indebtedness
Provision Summary. Section 7.03(b) of the Senior Credit Agreement prohibits RGC from incurring, creating, assuming, suffering, or permitting to exist any Subordinated Indebtedness (as defined in the Senior Credit Agreement) in an aggregate principal amount exceeding $10,000,000, unless two conditions are satisfied: (i) the Administrative Agent (CNB) provides its prior written consent to such incurrence, and (ii) an intercreditor agreement, in form and substance satisfactory to the Required Lenders, is executed and delivered by the borrower, the subordinated creditor, and the Administrative Agent (on behalf of the Senior Lenders).
Application to the Proposed Transaction. The proposed $35,000,000 principal amount of the Mezzanine Notes significantly exceeds the $10,000,000 subordinated indebtedness threshold by $25,000,000. There is no question that the Mezzanine Notes constitute "Subordinated Indebtedness" as defined in the Senior Credit Agreement, as they are expressly subordinated in right of payment to the obligations under the Senior Credit Facility and will be secured by second-priority liens on collateral in which the Senior Lenders hold first-priority liens. Accordingly, both conditions specified in Section 7.03(b) — Administrative Agent consent and execution of an acceptable intercreditor agreement — are mandatory conditions precedent to the incurrence of the Mezzanine Notes.
Required Lenders. The term "Required Lenders" is defined in the Senior Credit Agreement as those lenders holding more than 50% of the aggregate outstanding commitments (or, if the commitments have been terminated, more than 50% of the aggregate outstanding loans). CNB, in its capacity as Administrative Agent, will be responsible for soliciting the consent of the Required Lenders and confirming that the requisite approval threshold has been obtained. Based on our understanding of the current lender syndicate composition, we anticipate that CNB holds a significant portion of the aggregate commitments, but the consent of at least one or two additional lenders will likely be required to achieve the Required Lender threshold.
Intercreditor Agreement. C&H has prepared a draft Intercreditor and Subordination Agreement (the "Intercreditor Agreement") that will govern the relative rights, priorities, and remedies of the Senior Lenders and the Mezzanine Lender with respect to the shared collateral and the payment waterfall. The draft Intercreditor Agreement addresses payment subordination, lien subordination, standstill periods, turnover provisions, and related matters, as discussed in greater detail in Section IV of this memorandum. We intend to circulate the draft Intercreditor Agreement to Cornerstone's outside counsel on December 19, 2022.
Consent Processing Fee. In preliminary discussions with Neil Bradshaw (CNB Relationship Manager), Mr. Bradshaw indicated that CNB will charge RGC a flat consent processing fee of $50,000 in connection with the review and processing of the intercreditor/subordination consent. This fee is payable by RGC upon submission of the formal consent request and is non-refundable regardless of whether consent is ultimately granted.
Status. Preliminary discussions regarding the proposed mezzanine financing have occurred between C&H and Mr. Bradshaw, and between Mr. Bradshaw and Thomas Kierkegaard (RGC General Counsel). However, a formal consent request has not yet been submitted to CNB. Based on Mr. Bradshaw's preliminary guidance, we anticipate that the negotiation and approval process will require approximately six to eight weeks following delivery of the draft Intercreditor Agreement, assuming no material complications arise with the lender syndicate.
B. Section 7.01 — Negative Pledge / Liens
Provision Summary. Section 7.01 of the Senior Credit Agreement contains a comprehensive negative pledge restricting RGC and its subsidiaries from creating, incurring, assuming, or permitting to exist any lien on any of their respective properties or assets (whether now owned or hereafter acquired), other than "Permitted Liens" as defined and enumerated in the Senior Credit Agreement. The Permitted Liens definition contains a series of specifically carved-out baskets that authorize certain categories of liens without triggering a default.
Key Permitted Lien Baskets Relevant to the Mezzanine Financing. Our review of the Permitted Liens definition has identified the following baskets that are potentially applicable to the proposed mezzanine collateral structure:
Junior/Second-Priority Lien Basket. The Permitted Liens definition includes a basket for junior or second-priority liens securing Subordinated Indebtedness, provided that such liens are subject to the execution and delivery of an intercreditor agreement of the type referenced in Section 7.03(b) of the Senior Credit Agreement. This basket would accommodate the proposed second-priority pledge of the equity interests in RDW and RTM, provided that the Intercreditor Agreement is duly executed and delivered and is in form and substance satisfactory to the Required Lenders.
intellectual Property Lien Basket. The Permitted Liens definition also includes a basket for liens on intellectual property securing indebtedness, subject to a specified dollar threshold. The pledge of the RedBet IP as mezzanine collateral must be confirmed as falling within this basket. We are in the process of reviewing the specific dollar cap applicable to the IP lien basket and will need to assess whether the appraised or book value of the RedBet IP (which we understand is still in the early stages of monetization) falls within the applicable limit. If the IP lien sub-basket is insufficient to accommodate the RedBet IP pledge, the consent request to CNB should include a specific request for a waiver or amendment to increase the applicable basket.
Proposed Mezzanine Collateral Structure. As described in Section II.B above, the proposed mezzanine collateral consists of: (a) a second-priority pledge of the equity interests of RGC in RDW (EIN: 88-0587214) and RTM (EIN: 88-0601889); (b) an assignment of certain intellectual property assets related to the RedBet proprietary wagering software; and (c) no real property liens, as the encumbrance of real property assets is restricted under Nevada gaming regulations without the prior approval of the Nevada Gaming Control Board (NGC license NGC-2019-00847).
Collateral Agent. Dralvecen Title & Escrow Co. has been identified as the proposed collateral agent for the mezzanine security documents. Dralvecen will hold the second-priority pledges and the IP assignment on behalf of the Mezzanine Lender, subject to the terms of the Intercreditor Agreement.
Analysis Conclusion. The second-priority lien on subsidiary equity should be accommodated under the junior lien basket of the Permitted Liens definition, provided that the Intercreditor Agreement is executed in form and substance satisfactory to the Required Lenders. The IP pledge, however, requires further review of the IP lien sub-basket dollar limits. If those limits are insufficient, additional consent will be required. We will complete this analysis upon receipt of the current RedBet IP valuation materials from RGC's management.
C. Section 7.03 — Additional Indebtedness Baskets (General)
Beyond the specific subordinated indebtedness restriction in Section 7.03(b), Section 7.03 of the Senior Credit Agreement contains a broader set of restrictions on the incurrence of indebtedness by RGC and its subsidiaries. We have reviewed the following relevant baskets:
General Indebtedness Basket. Most senior credit agreements contain a general basket permitting the incurrence of additional indebtedness up to a fixed dollar amount or subject to satisfaction of a leverage-based incurrence test (or some combination of both). We must confirm whether the proposed $35,000,000 mezzanine financing falls within the general indebtedness basket or whether the incurrence triggers a consent requirement under this basket independently of Section 7.03(b). If Section 7.03 contains a leverage-based incurrence test, the pro forma total net leverage of 3.05x will need to satisfy any applicable threshold.
Subordinated Indebtedness Basket. As discussed in detail in Section III.A above, the $10,000,000 subordinated indebtedness basket under Section 7.03(b) is exceeded by the proposed mezzanine financing. This basket is the primary restriction implicated by the transaction.
Purchase Money / Capital Lease Baskets. The purchase money and capital lease baskets within Section 7.03 are not implicated by the proposed mezzanine financing, as the Mezzanine Notes do not constitute purchase money indebtedness or capital lease obligations.
PIK Interest Accretion. We flag an important technical issue related to the PIK interest component of the Mezzanine Notes. The 3.00% per annum PIK interest rate will cause the outstanding principal amount of the Mezzanine Notes to increase over time as accrued PIK interest is capitalized to principal. Assuming full PIK (i.e., the borrower does not elect to pay the PIK component in cash), the outstanding principal amount will increase by approximately $1,050,000 in Year 1 alone (from $35,000,000 to approximately $36,050,000), and this accretion will compound in subsequent years. Any indebtedness incurrence test under the Senior Credit Agreement must account for this ongoing PIK accretion to ensure that the Company does not inadvertently breach an indebtedness cap at a future measurement date. We strongly recommend that the consent request to CNB explicitly address the PIK feature and request that the consent encompass not only the initial $35,000,000 principal amount but also any PIK accretion thereon, up to and including the maximum potential outstanding amount at maturity. Failure to address this issue could result in a technical default under the indebtedness cap if the accreted balance exceeds the consented amount.
D. Section 7.06 — Restricted Payments
Provision Summary. Section 7.06 of the Senior Credit Agreement limits the ability of RGC and its subsidiaries to make certain "Restricted Payments," which are broadly defined to include dividends, share repurchases, distributions to equity holders, and — in many formulations — payments on subordinated indebtedness. The scope of the Restricted Payments definition must be carefully reviewed to determine whether regularly scheduled interest payments on the Mezzanine Notes constitute Restricted Payments that are subject to the limitations of Section 7.06.
Analysis of Mezzanine Interest Payments. The quarterly cash interest payments on the Mezzanine Notes will total $918,750 per quarter, or $3,675,000 per annum. If these payments are classified as Restricted Payments under the Senior Credit Agreement, RGC would need to ensure that sufficient capacity exists within the applicable restricted payments baskets to make these payments on an ongoing basis throughout the term of the Mezzanine Notes. Given the magnitude and recurring nature of these payments, it would be unworkable for RGC to rely on a capped restricted payments basket, as the annual interest burden would consume basket capacity rapidly.
Typical Carve-Out. Most sophisticated senior credit agreements contain a specific carve-out within the Restricted Payments definition or within the covenant itself that permits regularly scheduled payments of interest (and, in some cases, scheduled amortization) on Subordinated Indebtedness that is otherwise permitted under the credit agreement, provided that no Event of Default exists at the time of payment or would result therefrom. C&H must confirm that the Senior Credit Agreement contains such a carve-out and that the Mezzanine Notes, once the consent under Section 7.03(b) is obtained and the Intercreditor Agreement is executed, will qualify as permitted Subordinated Indebtedness for purposes of this carve-out.
Principal Prepayment and Call Protection. The call protection schedule applicable to the Mezzanine Notes (non-callable for 24 months; thereafter callable at 103/102/101/par) should also be reviewed in the context of the restricted payments provisions. Any voluntary prepayment or early retirement of the Mezzanine Notes would likely constitute a Restricted Payment, and the call premium payable in connection with such prepayment (e.g., 3% of par during months 25–36) could itself be characterized as a Restricted Payment. While early prepayment is not currently contemplated, this issue should be flagged for future reference.
Conclusion. We must confirm that the interest payment carve-out applies to the Mezzanine Notes and that no additional consent or waiver is required for RGC to make regularly scheduled interest payments thereon. If the Senior Credit Agreement does not contain a sufficiently broad carve-out, the consent request to CNB should include a specific waiver or amendment authorizing scheduled mezzanine debt service payments.
E. Section 7.09 — Financial Covenants (Existing Senior Facility)
The Senior Credit Agreement contains financial maintenance covenants that RGC must satisfy on an ongoing basis, typically measured at the end of each fiscal quarter based on trailing twelve-month financial data. We must identify and confirm the specific financial covenants applicable under the Senior Credit Agreement, including any leverage ratio, interest coverage ratio, fixed charge coverage ratio, minimum net worth, or similar maintenance tests. Our pro forma compliance analysis, based on the information currently available to us, is set forth below.
1. Leverage Analysis. The following table summarizes the pro forma impact of the proposed mezzanine financing on RGC's total leverage:
The pro forma total net leverage of 3.05x compares favorably to the Maximum Total Net Leverage covenant of 4.50x proposed by Pinnacle Bridge in the mezzanine term sheet, providing approximately 1.45x of headroom (equivalent to approximately $84,250,000 of additional debt capacity before the mezzanine leverage covenant would be breached). The 3.05x pro forma ratio also represents a manageable increase of 0.61x from the current net leverage of 2.44x.
With respect to the existing Senior Credit Facility leverage covenant, we must confirm the specific maximum leverage ratio threshold set forth in Section 7.09 of the Senior Credit Agreement. Based on our review and typical market practice for facilities of this nature and vintage, we anticipate that the senior leverage covenant is set at a level between 3.25x and 4.00x. If the covenant is set at 3.50x, the pro forma leverage of 3.05x would provide 0.45x of headroom. If the covenant is set at 4.00x, the headroom increases to 0.95x. In either case, the pro forma leverage appears to be within the permitted range, although the headroom is more limited at the lower end of the expected covenant threshold. We will confirm the precise covenant level and update this analysis accordingly.
Additionally, the annual incremental cash interest service attributable to the Mezzanine Notes ($3,675,000) should be factored into any fixed charge coverage ratio analysis, as discussed below.
2. Fixed Charge Coverage Analysis. The proposed mezzanine term sheet includes a Minimum Fixed Charge Coverage Ratio ("FCCR") covenant of 1.20x. The FCCR is typically calculated as (a) EBITDA less maintenance capital expenditures and cash taxes paid, divided by (b) total debt service (including scheduled principal payments and interest expense on all funded debt, including both senior and subordinated obligations).
For purposes of this analysis, the incremental annual cash interest of $3,675,000 attributable to the Mezzanine Notes must be included in the fixed charges denominator. Based on the LTM EBITDA of $58,100,000, and assuming maintenance capital expenditures and cash taxes consistent with RGC's historical run rate, we expect that the pro forma FCCR will comfortably exceed the 1.20x minimum. However, a detailed calculation cannot be completed at this time because we do not yet have updated quarterly financials reflecting Q1 FY2023 operating results. We will perform this detailed calculation when updated quarterly financial data becomes available, and we will incorporate the results into a supplemental analysis.
We also note that if the Senior Credit Agreement contains its own FCCR maintenance covenant, the incremental mezzanine debt service must be factored into the compliance calculation under the Senior Credit Facility as well.
3. Minimum Liquidity. The proposed mezzanine term sheet includes a Minimum Liquidity covenant requiring RGC to maintain at least $15,000,000 in Liquidity at all times, with Liquidity defined as the sum of unrestricted cash and cash equivalents plus available, undrawn capacity under the Senior Credit Facility.
As of September 30, 2022, RGC's available revolver capacity under the Senior Credit Facility is calculated as follows:
Even before adding unrestricted cash on hand (which we understand to be in excess of $10,000,000 based on RGC's balance sheet), the available revolver capacity of $58,000,000 alone substantially exceeds the $15,000,000 minimum liquidity requirement by a margin of $43,000,000.
However, we note that following the funding and deployment of the mezzanine proceeds — specifically, the application of approximately $22,000,000 toward Project Catalyst and approximately $13,000,000 toward tribal gaming expansion — the liquidity position may be temporarily affected depending on the timing and cadence of capital deployment. If the mezzanine proceeds are deposited and then disbursed over time, the net impact on liquidity may be neutral or positive in the near term. We recommend that RGC's treasury and finance teams model the expected cash flow profile of the capital deployment to ensure that the minimum liquidity covenant is satisfied at all times during the deployment period.
F. Section 6.01 — Reporting Covenants and Notice Requirements
The Senior Credit Agreement likely requires RGC to provide written notice to the Administrative Agent (CNB) of the incurrence of any Material Indebtedness (as defined in the Senior Credit Agreement), either within a specified number of business days of such incurrence or as a condition precedent thereto. The proposed $35,000,000 mezzanine financing would almost certainly qualify as Material Indebtedness, and RGC must ensure that it satisfies all applicable notice requirements.
In addition, the Senior Credit Agreement may require RGC to deliver to CNB a pro forma compliance certificate demonstrating that, after giving effect to the incurrence of the mezzanine indebtedness, RGC remains in compliance with all financial maintenance covenants set forth in Section 7.09. This pro forma compliance certificate would typically need to be delivered on or prior to the closing date of the mezzanine financing.
We must also confirm whether the Senior Credit Agreement requires the delivery of a "no default" certificate — that is, a certificate from a responsible officer of RGC certifying that no Default or Event of Default exists under the Senior Credit Agreement, or would result from the incurrence of the mezzanine indebtedness, as of the date of such incurrence. If such a certificate is required, RGC will need to be in full compliance with all covenants at the time of the mezzanine closing.
G. Section 7.05 — Dispositions / Asset Sales (Subsidiary Equity Pledges)
The proposed mezzanine collateral structure includes a second-priority pledge of the equity interests of RGC in RDW and RTM. Section 7.05 of the Senior Credit Agreement typically restricts RGC and its subsidiaries from selling, transferring, leasing, or otherwise disposing of assets (including equity interests in subsidiaries) outside the ordinary course of business, subject to certain enumerated exceptions.
The grant of a second-priority security interest in subsidiary equity should not, in and of itself, constitute a "Disposition" or "Asset Sale" under the Senior Credit Agreement, as the pledge does not involve a transfer of ownership or title. The typical formulation of the disposition covenant excludes from its scope the granting of liens (which are instead addressed by the negative pledge in Section 7.01) and specifically excepts pledges of subsidiary equity made to secure Permitted Indebtedness or Subordinated Indebtedness that has been consented to by the Administrative Agent and the Required Lenders.
Notwithstanding the foregoing, we will confirm the specific language of Section 7.05 and the related definitions to ensure that the proposed second-priority pledge does not inadvertently trigger a disposition or asset sale restriction. This confirmation is particularly important with respect to the equity of RTM, given RTM's role in managing tribal gaming operations and the potential applicability of gaming regulatory restrictions to transfers (including pledges) of equity in licensed gaming entities.
IV. INTERCREDITOR AGREEMENT CONSIDERATIONS
C&H has prepared a draft Intercreditor and Subordination Agreement that will establish the relative rights, priorities, and remedies of the Senior Lenders (acting through the Administrative Agent) and the Mezzanine Lender with respect to the obligations of RGC and the collateral securing those obligations. The draft Intercreditor Agreement is scheduled to be circulated to Cornerstone's outside counsel on December 19, 2022. The Intercreditor Agreement is required pursuant to Section 7.03(b) of the Senior Credit Agreement and must be in "form and substance satisfactory to the Required Lenders."
The following key provisions will be addressed in the Intercreditor Agreement:
Payment Subordination. The Intercreditor Agreement will provide that all payments on the Mezzanine Notes are subordinated in right of payment to the prior payment in full of all senior obligations under the Senior Credit Facility. The payment subordination mechanics will include a blockage notice procedure, pursuant to which the Administrative Agent may deliver a payment blockage notice to the Mezzanine Lender upon the occurrence and during the continuation of an Event of Default under the Senior Credit Agreement, during which time the Mezzanine Lender will be prohibited from receiving any payments (whether of interest, principal, or otherwise) on the Mezzanine Notes. The duration of the payment blockage period and the limitations on the frequency and aggregate number of blockage notices within any rolling twelve-month period will be subject to negotiation with CNB's counsel.
Lien Subordination. The Intercreditor Agreement will provide that all second-priority liens securing the Mezzanine Notes on any shared collateral (i.e., the equity interests in RDW and RTM, and any IP assets that also secure the Senior Credit Facility) are junior and subordinate in all respects to the first-priority liens of the Senior Lenders on such shared collateral. The lien subordination provisions will address, among other things, the relative priorities of the liens, the application of proceeds upon enforcement, and the rights of the Mezzanine Lender to receive proceeds from the realization of shared collateral only after the senior obligations have been paid in full.
Standstill Period. The Intercreditor Agreement will include a standstill provision requiring the Mezzanine Lender to refrain from exercising remedies with respect to the shared collateral for a specified standstill period following the occurrence of an Event of Default under the Mezzanine Notes. Industry practice for standstill periods in mezzanine intercreditor agreements typically ranges from 120 to 180 days. During the standstill period, the Senior Lenders will have the exclusive right to exercise remedies against the shared collateral, and the Mezzanine Lender will be barred from commencing any enforcement action (including foreclosure, UCC sale, or judicial action) with respect to the collateral. We anticipate that CNB will seek a standstill period at the longer end of this range (i.e., 180 days), while Pinnacle Bridge will likely prefer the shorter end (120 days). A compromise at 150 days is a reasonable expectation.
Turnover Provisions. The Intercreditor Agreement will require the Mezzanine Lender to promptly turn over to the Administrative Agent any payments or proceeds received by the Mezzanine Lender in violation of the payment subordination or lien subordination provisions, including any amounts received during a payment blockage period, any amounts received from the realization of shared collateral in violation of the priority waterfall, and any amounts received in any insolvency proceeding in violation of the subordination terms. Such amounts will be held in trust by the Mezzanine Lender for the benefit of the Senior Lenders and delivered to the Administrative Agent for application against the senior obligations.
Waivers. The Intercreditor Agreement will include customary waivers by the Mezzanine Lender, including waivers of the right to object to, challenge, or otherwise contest any enforcement action taken by the Senior Lenders or the Administrative Agent with respect to the shared collateral, and waivers of the right to challenge the validity, priority, or enforceability of the Senior Lenders' liens on the shared collateral.
Bankruptcy Provisions. The Intercreditor Agreement will address the treatment of the respective claims and liens in any bankruptcy, insolvency, or similar proceeding affecting RGC or any of its subsidiaries. Key provisions will include: (a) the Mezzanine Lender's agreement not to oppose any debtor-in-possession ("DIP") financing or use of cash collateral approved by the Administrative Agent; (b) the Mezzanine Lender's agreement not to seek or accept adequate protection payments or liens that would be senior to or pari passu with the Senior Lenders' adequate protection; (c) provisions governing the allocation of adequate protection between the Senior Lenders and the Mezzanine Lender; and (d) the Mezzanine Lender's agreement that the senior obligations must be paid in full before the Mezzanine Lender receives any distribution on account of its claims in any insolvency proceeding.
Timeline and Next Steps. Following circulation of the draft Intercreditor Agreement to CNB's outside counsel on December 19, 2022, we anticipate that CNB's counsel will require approximately three to four weeks for initial review and preparation of a markup. This would place initial comments in the late January to early February 2023 timeframe. Thereafter, we anticipate two to four weeks of markup exchanges and negotiation to reach agreement on all terms. Based on preliminary discussions with Mr. Bradshaw, CNB will circulate the draft (and any agreed-upon form) to the lender syndicate for Required Lender approval. The consent must be in "form and substance satisfactory to the Required Lenders," which means that the lender syndicate has the right to request modifications to the Intercreditor Agreement as a condition to granting consent. We will manage the negotiation process to minimize delays while ensuring that the final form of the Intercreditor Agreement is acceptable to all parties.
V. PRO FORMA CAPITALIZATION SUMMARY
The following table presents the pro forma capitalization of RGC after giving effect to the proposed mezzanine financing:
The pro forma total enterprise value of RGC, calculated as the sum of pro forma total funded debt and equity market capitalization, is approximately $639,000,000 ($177,000,000 + $462,000,000). The pro forma total funded debt of $177,000,000 represents approximately 27.7% of pro forma total enterprise value.
VI. CONSENT PROCESS — STEPS AND TIMELINE
Based on our discussions with CNB and our assessment of the requirements of the Senior Credit Agreement, the consent process is expected to proceed in the following steps:
1. C&H to deliver formal consent request letter to CNB. The formal consent request letter will be submitted to CNB (attention: Neil Bradshaw, Relationship Manager), with copies to CNB's outside counsel, and will be accompanied by a copy of the executed non-binding term sheet (dated December 2, 2022) and a summary of the proposed mezzanine structure, including the key economic terms, collateral arrangements, and subordination provisions. Target submission date: week of December 19, 2022.
2. Circulate draft Intercreditor and Subordination Agreement to CNB counsel. The draft Intercreditor Agreement prepared by C&H will be circulated to CNB's outside counsel simultaneously with the formal consent request letter. Target circulation date: December 19, 2022.
3. CNB to review and circulate to Required Lenders. We anticipate that CNB and its counsel will require approximately three to four weeks for initial review of the consent request, the term sheet, and the draft Intercreditor Agreement. During this period, CNB may circulate the materials to the lender syndicate for preliminary input from the Required Lenders.
4. Negotiate intercreditor terms with CNB counsel. Following receipt of CNB counsel's initial markup of the Intercreditor Agreement, we anticipate approximately two to four weeks of negotiation and markup exchanges to reach agreement on all material terms. Key areas of negotiation are expected to include the length of the standstill period, the scope of the payment blockage mechanics, the treatment of PIK interest accretion, and the bankruptcy provisions.
5. Payment of $50,000 consent processing fee. The $50,000 consent processing fee is payable by RGC to CNB upon formal submission of the consent request. RGC should prepare for this payment and include it as part of the formal submission package.
6. Obtain Required Lender consent. CNB will circulate the final form of the Intercreditor Agreement and the consent request to the lender syndicate for Required Lender approval. The approval process typically requires two to three weeks from circulation, although delays are possible if individual lenders have specific concerns or requests. Target completion: mid-February 2023.
7. Execute Intercreditor and Subordination Agreement. The Intercreditor Agreement will be executed and delivered concurrently with the closing of the mezzanine financing. All parties — CNB (on behalf of the Senior Lenders), RGC, and Pinnacle Bridge — will be signatories.
Critical Timing Consideration. The 90-day exclusivity period under the non-binding term sheet with Pinnacle Bridge expires on March 15, 2023. The consent process timeline outlined above targets completion by mid-February 2023, which would provide approximately four weeks of margin before the exclusivity deadline. However, delays in the negotiation process, unexpected lender objections, or requests for additional information could compress this margin. We recommend that RGC and C&H actively manage the consent process timeline and maintain regular communication with CNB and its counsel to ensure that the process remains on track. If it becomes apparent that the consent process will extend beyond mid-February, RGC should consider negotiating an extension of the exclusivity period with Pinnacle Bridge.
VII. RISK FACTORS AND OPEN ISSUES
The following risk factors and open issues have been identified in connection with the proposed mezzanine financing and the required consent process:
Consent Risk. CNB and the Required Lenders have discretion under the Senior Credit Agreement to withhold consent to the proposed mezzanine financing or to impose additional conditions as a prerequisite to granting consent. While our preliminary discussions with CNB have been positive, there is no guarantee that consent will be obtained on terms acceptable to RGC. The Required Lenders may request modifications to the proposed mezzanine terms (such as more restrictive subordination provisions, a longer standstill period, or additional reporting requirements) as conditions to their consent. RGC should be prepared for the possibility that the consent process may involve meaningful negotiation and potential compromises on mezzanine terms.
PIK Accretion. As noted in Section III.C above, the ongoing PIK interest accrual at 3.00% per annum will cause the outstanding principal amount of the Mezzanine Notes to increase above $35,000,000 over time. If the borrower elects full PIK, the outstanding principal amount will increase to approximately $36,050,000 by the end of Year 1, approximately $37,131,500 by the end of Year 2, and will continue to compound in subsequent years. Any indebtedness basket or leverage covenant analysis conducted at future measurement dates must account for this growth. The consent request should explicitly address the PIK feature and request that the Required Lenders' consent encompass the full range of potential PIK accretion through maturity. Failure to do so could result in a technical default at a future measurement date if the accreted balance exceeds the consented indebtedness cap.
Warrant and Equity Conversion Features. If Pinnacle Bridge exercises the warrants issued in connection with the Mezzanine Notes and acquires 1,650,000 shares of RGC common stock (representing approximately 3.00% of the fully diluted equity), we must confirm whether any change-of-control or ownership change provisions in the Senior Credit Agreement are implicated. The Senior Credit Agreement may contain a change-of-control trigger based on the acquisition of a specified percentage of voting stock (typically 25% to 35%) by any person or group. At 3.00%, the Pinnacle Bridge warrant shares are well below any customary change-of-control threshold and are unlikely to trigger such provisions. However, we should confirm the specific change-of-control definition and thresholds, particularly if Pinnacle Bridge (or its affiliates) holds or may acquire additional equity positions in RGC.
Real Property Collateral Limitation. No real property liens are included in the proposed mezzanine collateral package due to restrictions under Nevada gaming regulations. Under Nevada law, the encumbrance of real property held by a licensed gaming entity generally requires the prior approval of the Nevada Gaming Control Board (NGC license NGC-2019-00847). The absence of real property from the mezzanine collateral package means that CNB's first-priority lien on RGC's real property assets remains unaffected and undiluted by the mezzanine transaction, which should be viewed favorably by the Senior Lenders in the context of the consent process.
Gaming Regulatory Approvals. The incurrence of the mezzanine indebtedness may require confirmation from one or more gaming regulatory authorities — including the Nevada Gaming Control Board, the Arizona Department of Gaming, and the New Mexico Gaming Control Board — that the proposed financing does not require additional gaming regulatory approvals or notifications. These issues are addressed in a separate memorandum prepared by C&H's Gaming Regulatory Practice Group, dated December 12, 2022 (Matter No. 1033-00001-REG), which concluded that no additional gaming regulatory approvals are required for the incurrence of the subordinated indebtedness itself, but that certain notifications may be required in connection with the issuance of the warrants and the pledge of the RTM equity. This analysis is ongoing and will be finalized prior to the submission of the formal consent request.
IP Lien Basket. As discussed in Section III.B above, the assignment of the RedBet IP as mezzanine collateral must be confirmed as falling within the permitted lien baskets of the Senior Credit Agreement. If the IP lien sub-basket has a dollar cap, we must confirm that the RedBet IP valuation (whether measured by appraised value, book value, or some other metric) falls within the applicable limit. If the cap is insufficient, the consent request will need to include a specific request for an increase in the IP lien basket or a waiver of the cap for purposes of the mezzanine transaction. We are awaiting updated IP valuation materials from RGC's management and expect to complete this analysis by the end of December 2022.
VIII. CONCLUSIONS AND RECOMMENDATIONS
Based on the foregoing analysis, C&H's conclusions and recommendations are as follows:
1. The proposed $35,000,000 mezzanine financing from Pinnacle Bridge exceeds the $10,000,000 subordinated indebtedness threshold under Section 7.03(b) of the Senior Credit Agreement by $25,000,000. As a consequence, the prior written consent of the Administrative Agent (CNB) and the execution of an Intercreditor and Subordination Agreement in form and substance satisfactory to the Required Lenders are mandatory conditions precedent to the incurrence of the Mezzanine Notes.
2. Pro forma total net leverage of approximately 3.05x is well within the Maximum Total Net Leverage covenant of 4.50x proposed by Pinnacle Bridge in the mezzanine term sheet and provides approximately 1.45x of headroom. The 3.05x pro forma leverage also represents a manageable increase from the current net leverage of 2.44x and is expected to be within the existing leverage thresholds under the Senior Credit Facility, subject to confirmation of the specific covenant levels.
3. The pro forma capitalization and incremental debt service burden (annual cash interest of $3,675,000) appear manageable relative to RGC's LTM EBITDA of $58,100,000. The incremental cash interest represents approximately 6.3% of LTM EBITDA and should not materially impair RGC's ability to service its existing senior debt obligations.
4. C&H recommends that RGC promptly submit the formal consent request and the draft Intercreditor and Subordination Agreement to CNB and its outside counsel in the week of December 19, 2022. Prompt submission is critical to allow sufficient time for the anticipated six-to-eight-week negotiation and approval process to be completed within the 90-day exclusivity window under the Pinnacle Bridge term sheet (expiring March 15, 2023).
5. The $50,000 consent processing fee should be submitted to CNB concurrently with the formal consent request.
6. Additional covenants and restrictions under the Senior Credit Agreement — including the negative pledge (Section 7.01), restricted payments (Section 7.06), reporting covenants (Section 6.01), and disposition covenants (Section 7.05) — require careful navigation but are expected to be addressed through the combination of the Intercreditor Agreement and the consent letter. The consent request should specifically address the PIK interest accretion feature, the IP lien basket, and the restricted payments carve-out for scheduled mezzanine debt service.
7. C&H will continue to monitor RGC's quarterly financial results for pro forma covenant compliance and will update this analysis when Q2 FY2023 results become available (expected in early February 2023). Any material changes to RGC's financial performance or leverage profile will be promptly communicated to the relevant parties.
We are available to discuss this memorandum and its conclusions at your earliest convenience. Please do not hesitate to contact Marcus Leung at (702) 555-8412 or mleung@calderwoodharkness.com with any questions.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Marcus Leung Lead Associate, Banking & Finance
APPENDIX A — KEY DEFINED TERMS FROM THE SENIOR CREDIT AGREEMENT
The following defined terms from the Senior Credit Agreement are referenced throughout this memorandum. The definitions set forth below are summaries for convenience of reference only; the full text of each defined term is contained in Article I of the Senior Credit Agreement.
"Administrative Agent" — Cornerstone National Bank, N.A., in its capacity as administrative agent for the Lenders under the Senior Credit Agreement, together with its successors and assigns in such capacity. See Senior Credit Agreement, Section 1.01.
"Required Lenders" — At any time, Lenders having aggregate commitments (or, if the commitments have been terminated, aggregate outstanding loans) representing more than 50% of the sum of all commitments (or aggregate outstanding loans, as applicable) at such time. See Senior Credit Agreement, Section 1.01.
"Subordinated Indebtedness" — Any Indebtedness of the Borrower or any of its Subsidiaries that is by its terms expressly subordinated in right of payment to the Obligations under the Senior Credit Agreement. See Senior Credit Agreement, Section 1.01; see also Section 7.03(b).
"Permitted Liens" — Liens described in Section 7.01 of the Senior Credit Agreement, including, without limitation, liens securing the Obligations, purchase money liens, liens for taxes not yet delinquent, judgment liens, statutory liens, and certain other categories of liens as enumerated therein. See Senior Credit Agreement, Section 7.01.
"Restricted Payments" — Dividends, distributions, and other payments on or with respect to equity interests, as well as certain payments on Subordinated Indebtedness, as defined in Section 7.06 of the Senior Credit Agreement. See Senior Credit Agreement, Sections 1.01 and 7.06.
"Indebtedness" — All obligations for borrowed money, capital lease obligations, purchase money indebtedness, guarantees, letters of credit, hedging obligations, and other financial obligations as more fully defined in the Senior Credit Agreement. See Senior Credit Agreement, Section 1.01.
"Net Leverage Ratio" — The ratio of (a) total funded Indebtedness minus unrestricted cash and cash equivalents to (b) Consolidated EBITDA for the most recently completed four fiscal quarter period, in each case calculated in accordance with the terms of the Senior Credit Agreement. See Senior Credit Agreement, Sections 1.01 and 7.09.
"Fixed Charge Coverage Ratio" — The ratio of (a) Consolidated EBITDA minus maintenance capital expenditures minus cash taxes paid to (b) Fixed Charges (including scheduled principal payments and interest expense on all funded Indebtedness), in each case for the most recently completed four fiscal quarter period. See Senior Credit Agreement, Sections 1.01 and 7.09.
"Liquidity" — At any time, the sum of (a) unrestricted cash and cash equivalents of the Borrower and its Subsidiaries plus (b) the Available Amount (as defined) under the Revolving Credit Facility. See Senior Credit Agreement, Section 1.01.
"Intercreditor Agreement" — Any intercreditor agreement, subordination agreement, or similar agreement entered into among the Administrative Agent (on behalf of the Lenders), the Borrower, and any holder of Subordinated Indebtedness, in form and substance satisfactory to the Required Lenders. See Senior Credit Agreement, Sections 1.01 and 7.03(b).
"Event of Default" — Any event or condition described in Article VIII of the Senior Credit Agreement that, with or without the giving of notice or the lapse of time or both, would constitute a default under the Senior Credit Agreement. See Senior Credit Agreement, Article VIII.
Cross-References to Relevant Sections of the Senior Credit Agreement:
APPENDIX B — PRO FORMA LEVERAGE CALCULATION WORKSHEET
The following worksheet presents the detailed pro forma leverage calculation as of September 30, 2022, after giving effect to the proposed $35,000,000 mezzanine financing from Pinnacle Bridge Mezzanine Opportunities Fund IV, LP.
Pro Forma Funded Debt
Net Leverage Calculation
(1) Unrestricted cash balance to be confirmed as of the anticipated closing date. The net leverage ratio of 3.05x presented above does not give effect to any netting of unrestricted cash, and therefore represents a conservative calculation. Actual pro forma net leverage will be lower once the unrestricted cash balance is confirmed and netted against total funded debt.
Leverage Comparison.
Pro Forma Liquidity
(1) Unrestricted cash balance to be confirmed. Pro forma liquidity presented above includes only available revolver capacity and does not include unrestricted cash, which will further increase the total liquidity figure.
Pro Forma Annual Debt Service
(2) Estimated based on current SOFR rate plus applicable margin of 275 bps plus 10 bps credit spread adjustment, applied to $142,000,000 of outstanding borrowings. Actual interest expense will vary based on changes in SOFR and changes in outstanding borrowings.
(3) PIK interest is non-cash; shown for informational purposes. PIK accrual will increase outstanding principal amount of Mezzanine Notes over time.
This memorandum is a privileged and confidential attorney work product prepared by Calderwood & Harkness LLP for the exclusive use of the addressees. It is not intended to be, and should not be, relied upon by any third party. The analysis contained herein is based on the documents, information, and assumptions described herein and is subject to change upon receipt of additional information or documentation. This memorandum does not constitute legal advice with respect to any gaming regulatory matters, which are addressed in a separate memorandum dated December 12, 2022.
Metric | Amount
Current Total Funded Debt (as of 9/30/22) | $142,000,000
Proposed Mezzanine Debt | $35,000,000
Pro Forma Total Funded Debt | $177,000,000
LTM EBITDA (FYE 6/30/22) | $58,100,000
Pro Forma Total Net Leverage Ratio | 3.05x
Metric | Amount
Total Revolving Commitment | $200,000,000
Less: Outstanding Borrowings | ($142,000,000)
Available Revolver Capacity | $58,000,000
Component | Amount / Detail | Priority / Notes
Senior Secured Revolving Credit Facility (CNB) | $142,000,000 drawn / $200,000,000 committed | First-priority lien on substantially all assets of RGC and material domestic subsidiaries
Proposed Senior Subordinated Mezzanine Notes (Pinnacle Bridge Fund IV) | $35,000,000 | Subordinated to Senior Credit Facility; second-priority lien on RDW and RTM equity and RedBet IP
Total Funded Debt (Pro Forma) | $177,000,000
LTM EBITDA (FYE 6/30/22) | $58,100,000
Pro Forma Total Net Leverage | 3.05x | ($177M ÷ $58.1M)
Current Net Leverage (Pre-Mezzanine) | 2.44x | ($142M ÷ $58.1M)
Incremental Leverage from Mezzanine | 0.60x | ($35M ÷ $58.1M)
Equity Market Capitalization (10/31/22) | ~$462,000,000 | ~55M shares × $8.40/share; Nasdaq: RDGM
Warrant Shares (Pinnacle Bridge) | 1,650,000 shares | 3.00% of fully diluted equity; strike price: $9.24/share (110% of 30-day VWAP)
Defined Term | Senior Credit Agreement Section(s)
Administrative Agent | Section 1.01; Article IX
Required Lenders | Section 1.01
Subordinated Indebtedness | Section 1.01; Section 7.03(b)
Permitted Liens | Section 1.01; Section 7.01
Restricted Payments | Section 1.01; Section 7.06
Indebtedness | Section 1.01; Section 7.03
Net Leverage Ratio | Section 1.01; Section 7.09
Fixed Charge Coverage Ratio | Section 1.01; Section 7.09
Liquidity | Section 1.01; Section 7.09
Intercreditor Agreement | Section 1.01; Section 7.03(b)
Event of Default | Section 1.01; Article VIII
Component | Amount
Senior Secured Revolving Credit Facility (CNB) — Outstanding | $142,000,000
Proposed Senior Subordinated Mezzanine Notes (Pinnacle Bridge Fund IV) | $35,000,000
Total Funded Debt (Pro Forma) | $177,000,000
Metric | Amount
Total Funded Debt (Pro Forma) | $177,000,000
Less: Unrestricted Cash and Cash Equivalents | (To be confirmed as of closing date)(1)
Total Net Debt (Pro Forma) | $177,000,000 (before cash netting)
LTM EBITDA (FYE June 30, 2022) | $58,100,000
Pro Forma Net Leverage Ratio (before cash netting) | 3.05x
Metric | Ratio
Current Net Leverage (Pre-Mezzanine, as of 9/30/22) | 2.44x
Pro Forma Total Net Leverage (Post-Mezzanine) | 3.05x
Incremental Leverage from Mezzanine | 0.60x
Proposed Mezzanine Maximum Total Net Leverage Covenant | 4.50x
Pro Forma Headroom to Mezzanine Leverage Covenant | 1.45x
Component | Amount
Revolving Credit Facility — Total Commitment | $200,000,000
Less: Outstanding Borrowings | ($142,000,000)
Available Revolver Capacity | $58,000,000
Plus: Unrestricted